Langton Capital – 2020-11-10 – PREMIUM EMAIL – Landlords, closures, vaccine news, Premier Foods, City Pubs etc.:
Landlords, closures, vaccine news, Premier Foods, City Pubs etc.:
PREMIUM EMAIL – PLEASE DO NOT FORWARD:
A DAY IN THE LIFE:
‘Don’t take alcoholic drink on Mondays’ says a fridge magnet we picked up at the Imperial War Museum.
Along with restricted licensing hours and weaker beer, such pleas were intended to stop munitions workers from either a) merrily turning out duds or b) blowing up their factories and it may have worked.
Indeed, it goes on to say, ‘the National Organising Committee feels sure that all who remain at home will willingly help…in this way.’
Well great but, as we’re in the middle of a pandemic, it’s November, it’s getting dark about 4pm and it’s raining, it’s easier said than done and, throw in a fridge full of beer easily to hand and the temptation’s too great for many of us.
And, whilst it may have failed in its exhortations yesterday, today’s Tuesday and all bets are off so let’s move on to the news:
ADVERTISE WITH US:
Langton’s free email now carries adverts. See front page of website for today’s copy & contact us for further details.
LANDLORDS & TENANTS; ALL IN THE SAME BOAT? Interesting to see Grosvenor’s comments last month re its investment in restaurants. 10 Nov 2020:
• ‘We could work together,’ says Jack Nicholson playing the US President in Mars Attacks. ‘Why be enemies?’ he asks. ‘Why destroy when we can create…why can’t we all just get along?’
• Of course, he is then killed by the Martians but does this have to be the shape of the landlord-tenant relationship in the UK.
• Grosvenor Estates, which has a chunk of Central London to die for, has said it is setting up a fund to take stakes in retailers and restaurant operators
• It will “selectively invest in tenants” to help them to survive the Covid-19 pandemic.
• But is this a novel idea? Arguably, the value of a commercial property is only ever a multiple of what the tenant can make from it.
• If so, the financial fortunes of landlord and tenant are perhaps already intimately linked.
• The property vehicle of the Duke of Westminster, Grosvenor Estates, has been in the game for 340yrs. It can safely be called ‘long-term’.
• The company seems to accept that its fortunes and those of its tenants are linked.
• Of course, change of use means that the landlord can reap value, even when a particular tenant, say a saddle maker or a pipe shop, suffers.
• But, in the shorter term, the landlord may have to tough it out alongside its tenants.
• Hugh Grosvenor, The Duke of Westminster, has personally donated an extra £10 million to the UK’s COVID-19 relief effort after having made an initial donation of £2.5m.
• This is being made largely to individuals rather than corporate tenants.
• Talk is cheap but there appears to be some money behind the words.
• Grosvenor Estates has already been offering ‘rent deferrals and rent-free arrangements to independent and vulnerable retail tenants and other commercial businesses, including farms, to help with cashflow concerns.’
• It says ‘where possible, and in line with local Government advice, we are also ensuring they can keep their operations open.’
• The CEO of Grosvenor Britain & Ireland, James Raynor, says ‘by innovating to invest in tenants, we’re rewriting what it means to be a landlord — seeking to create partnerships where each is genuinely invested in the others’ success.’
• He says ‘through long-term investments, we can help these businesses adapt their strategy and grow.’
• Realistically, Raynor says ‘landlords face the prospect of a rising number of empty properties if they do not support retailers, bars and restaurants.’
• He says ‘Grosvenor has already waived rent for hundreds of tenants between April and June and extended the Eat Out to Help Out Scheme for its restaurants in September.’
• Grosvenor reportedly has c500 retailers and F&B operators tenanting its properties in the Mayfair and Belgravia areas.
• Around two thirds of its retailers are independents or smaller businesses.
• Grosvenor says it is “taking a confident, long-term view on the success of central London”. At least in the short term, it may have little choice.
• A symbiotic or parasitic relationship? Twitter is smoking with heated comments from tenants directed at landlords.
• Some property owners are reasonable, others are pursuing tenants for every penny, even to the point of driving them out of business.
• Which seems like a bit of an own-goal since, unless the owner wants to redevelop the site & target higher-paying tenants, sites may be hard to fill and business rates will be payable on the empty property.
• If the landlord has Personal Guarantees from directors or cross-guarantees from other group businesses, it may call on them.
• Landlords may also consider that, if the tenant has improved the property or has left c£600k to £800k of fixtures and equipment in the building, it can re-rent the property at the same or a higher rent and gift some or all of the assets and goodwill to the new tenant
• And the landlords in question may be right. The next best use of a busted restaurant with three-quarters of a million pounds’ worth of kit in situ is probably still a restaurant.
• Indeed, this may iterate a couple more times but, whilst it is doing so, a neighbourhood could be in decline – and 340yr old companies probably don’t want that, do they?
Vaccine hopes buoy shares:
• UK travel & leisure stocks bounced sharply yesterday on news that a Covid-19 vaccine being developed by Pfizer and BioNTech was effective in 90% of cases, with no significant safety concerns.
• Rises of between 20% and 30% registered by City Pub Group, Compass, Hollywood Bowl, Hostelworld, Marson’s, M&B, On the Beach, Rank Group, Safestay, Saga, Ten Entertainment, JD Wetherspoon & Young & Co.
• Rises of 30% to 40% for Carnival Cruise Lines, Escape Hunt, Gym Group & Restaurant Group. Rises of 40% plus for Cineworld, Everyman, Revolution Bar Group and SSP Group.
• The Guardian says the result ‘shows a much better performance than most experts had hoped for and brings into view a potential end to [the] pandemic.’ Light at the end of the tunnel would be most welcome. There are hopes that some of the vaccine could be available before the end of this calendar year.
• CGA has reported that ‘trading restrictions led almost a third of Britain’s licensed premises to shut their doors last month.’ The latest Market Recovery Monitor from CGA and AlixPartners says that ‘the sector may be substantially reduced after the end of England’s four-week lockdown.’
• Some 69.9% of Britain’s total licensed premises were trading at the end of October 2020. This is a fall of more than ten percentage points on sites open a month earlier (80.4%), and equivalent to nearly 12,000 sites closing their doors by the end of October.’
• It remains to be seen how many of these closures are temporary or permanent. In mid-October, a survey coordinated by CGA found that members of three leading trade groups expected 43% of closed outlets would not reopen, and that they would have to close another 6% by the end of the month.’
• CGA says ‘with trading conditions made even tougher since then, it is likely that pessimism about permanent closures will have deepened.’ It says ‘hospitality has been steadily reopening since the end of the first national lockdown, and nearly 20,000 sites opened their doors again over August and September—but October saw an abrupt end to the recovery.’
• It goes on to say that ‘it’s very clear from this report that every new restriction damages businesses’ ability to trade.’ It concludes ‘financially robust companies should be able to sustain themselves through the lockdown, and the extension of the government’s furloughing scheme will undoubtedly save some businesses. But much more support is going to be needed to prevent a wave of permanent closures over the winter.’
• AlixPartners adds ‘the recovery of hospitality has been halted by the second lockdown in England and with the Government stating that, once lifted, the country will return to the tiered system and significant trading restrictions, the question must be whether some of these sites will ever reopen under their current ownership.’
• Paris has banned takeaway food and alcohol from being delivered between the hours of 10pm and 6am.
• Pragma consulting says that the ‘takeaway industry has been the natural beneficiary of lockdown’ though it says that home cooking has also been more popular during the pandemic.
• Research across five European countries commissioned by Tesco showed that in July home cooked meals accounted for 72% of meal occasions, up from 60% pre-Covid. This will be largely behind the fall in a number of food companies’ share prices yesterday.
• Pragma says ‘with the closure of pubs, small breweries saw sales fall over 80% between March and April, whilst alcohol sales in supermarkets jumped 22% in March. Smaller brewers typically sell a higher proportion of their beers to the on trade. Supermarket sales often come with a low margin.
• Beer delivery has picked up. Reportedly online searches for local beer deliveries rose by 500% during lockdown.
• Food service analyst Peter Backman comments on what the future might look like saying that its ‘depends mightily on the progress of Covid – and government’s reactions to it, and especially whether the second lockdown will be extended beyond 2 December.’
• The Pfizer vaccine will hopefully move the dial. Backman says ‘a week ago, my planning assumption was that it would be [that is the lockdown be extended beyond 2 December], but the R number is now falling in most parts of the country and that means that, while cases and deaths will continue to rise, by the end of the month they should have stabilised.’
• The falling R rate and the hopes of a vaccine could give the government the confidence to lift the lockdown at the first opportunity, namely 2 December. In order to plan, pubs & restaurants would like as much notice as possible.
• Christmas remains an unknown. Given the Pfizer news, hopes are growing that the consumer will be in a relatively buoyant mood.
• KAM Media reports that, in October, the proportion of complaints fell across all hospitality sectors. KAM reports that ‘cleanliness continues to draw complaints but complaints around ‘atmosphere’ are also on the rise.’ The ‘atmosphere’ is likely dampened by having to sit at table, the requirement to wear a mask when moving around venues etc.
• The Night Time Industries Association yesterday lobbied MPs to loosen regulations on the late-night industry.
The flip side of eating at home:
• Pubs and restaurants have suffered during the various Covid restrictions that have been put in place in the UK. But there have been some relative winners.
• Premier Foods, which has benefited to some extent from the move to cook at home, reports that H1 trading has been ‘exceptionally strong’. CEO Alex Whitehouse says ‘in the first half of the year, demand for our branded product ranges has been exceptional, particularly in our Grocery businesses which have helped deliver strong profit growth, accelerated debt reduction.’
• The company says ‘we have seen many more meal occasions being consumed at home, particularly in the first quarter [the quarter to end-June], followed by a transition towards more normal levels of demand through quarter two.’ The CEO says ‘we have continued to grow faster than all our categories, increasing market share in each one.’
• Premier says ‘looking to the second half of the financial year, we expect to see continued revenue growth driven by further new product innovation, strong commercial plans and increased marketing investment for our brands, with six major brands planned to be advertised on TV.’ It adds ‘we also now expect to see an increase in demand for our brands due to the impact of recently increased government restrictions on eating out. The longevity of this increased demand is likely to be linked to the duration of these new measures, and although we have tougher comparatives in the fourth quarter, we anticipate that Trading profit for the full year will be ahead of current market expectations.’
• Premier concludes ‘following both our recent progress in accelerating leverage reduction along with proceeds received from the Hovis transaction, we are today announcing a new medium-term target for Net debt/EBITDA of approximately 1.5x.’
• City Pub Group has announced that Toby Smith is to become Chief Operating Officer of the Company, a newly created role. Chairman Clive Watson says ‘the challenges of COVID will also bring opportunity and we are seeking to position ourselves to take advantage of opportunities which undoubtedly will arise.’
• McDonald’s has announced a ne line of plant-based meat alternatives called “McPlant.” The products will be available from next year.
• Big Hospitality reports that MEATliquor is to open a restaurant in The Brunswick Centre in London’s Bloomsbury just weeks after closing its King Cross venue. It says ‘the new restaurant is due to open in two weeks’ time – while the lockdown for England is still in place – where it will serve a takeaway menu in preparation of opening a full dine-in experience when the restrictions are lifted in December.’
• London Brewery Two Tribes is to launch a subscription service that will allow it to service customers countrywide.
• Canadian cannabis producer Aphria Inc is to buy a craft brewery in the US, Atlanta’s Sweetwater Brewing Co., for around US$300 million.
• Aphria says ‘we will establish and grow our U.S. presence through SweetWater’s robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise. At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing $29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalisation.’
• Aldi has extended its trial click-and-collect shopping service to 200 more UK stores. Around a quarter of its 900 shops will offer the service by the end of the year.
HOTELS & LEISURE TRAVEL:
• Travel shares bounced yesterday on hopes that a vaccine protecting against Covid-19 could be available as soon as next month.
• What goes around comes around.
• With Amazon moving into bricks & mortar stores, it should come at no surprise that Netflix is testing out a ‘linear content channel’ (meaning a channel with a programming schedule similar to that which existed for 60yrs or so prior to on-demand becoming available).
• The Netflix channel will reportedly be first available in France.
FINANCE & MARKETS:
• Accountant BDO reports that the UK economy will decline this month and next. Given the lockdown, this month is almost a cert but there is that chance of a bounce in December.
• Guardian and others reporting that the government will be under even greater pressure to agree to almost any deal proposed by the EU as a deal with the US is looking less likely. Biden and Harris are reported to consider Boris Johnson to be a mini-Trump. Whilst perhaps harsh, there have also been concerns about his alleged mendacity & comments re gender, orientation, race etc.
• The EU is to slap $4bn of American goods with tariffs.
• Sterling higher vs Euro but unchanged vs dollar. Oil higher at $42.27. UK 10yr gilt yield up 10bps at 0.38%. World markets strongly better yesterday on Covid-19 vaccine news. London set to open down around 15pts.
RETAIL WITH NICK BUBB:
• Monday’s News: The surprise in the Q3 trading update from the funeral services provider Dignity is the news that the number of national deaths was actually 2% down in the period compared to last year and that the October death rate looks to have been only “broadly flat”, despite the second wave of the pandemic. But Dignity has increased market share and the City seems pleased with the results, with the shares trading up 6%. And Next has continued its series of brand collaborations, with the upmarket furnishings business Walker Greenbank announcing that its Sanderson, Sanderson Home and Morris & Co brands have signed a licensing agreement with Next for an extensive range of clothing, homeware and accessories! As for Games Workshop, they chose to push out a trading update after lunch on Friday, to flag that trading since the last update on September 10th had been ahead of the Board’s
• Yesterday’s Press (1): The focus in most of today’s papers is on the US Election result: the Guardian front page headline is “Biden gets to work as Trump fumes”, whilst the Telegraph says “Pressure grows on Trump to go quietly” and the FT has “Biden moves to unravel key Trump policy calls”.
• Yesterday’s Press (2): In terms of Retailing stories, the Telegraph flags that Frasers/#MadMike are furious about being “frozen out” of bidding for the Peacocks, Jaeger and EWM chains by the administrators of the bankrupt EWM Group. The Times highlights the plight of Savile Row tailors, with demand collapsing and the upcoming loss of VAT relief for Overseas tourists likely to be the final nail in their coffin. The FT follows up the news that The Entertainer toy chain was angry to get a demand for unpaid rent from Westfield on the eve of lockdown, noting that stores like Pret and Hugo Boss got the same treatment. The Daily Mail flags that Burberry will report a big plunge in interim profits on Thursday.
• News Flow Next Week: The BRC-KPMG Retail Sales for October are out first thing tomorrow, closely followed by the Land Secs interims and the latest monthly Kantar/Nielsen grocery sales figures. Thursday then brings the B&M interims, the Burberry interims and the WH Smith finals.